INCREASING THE ACCURACY OF OPTION PRICING BY USING IMPLIED PARAMETERS RELATED TO HIGHER MOMENTS

The inaccuracy of the Black-Scholes formula arises from two aspects: the formula is for European options while most real option contracts are American; the formula is based on the assumption that underlying asset prices follow a lognormal distribution while in the real world asset prices cannot be described well by a lognormal distribution. We develop an American option pricing model that allows non-normality. The theoretical basis of the model is Gaussian quadrature and dynamic programming. The usual binomial and trinomial models are special cases. We use the Jarrow-Rudd formula and the relaxed binomial and trinomial tree models to imply the parameters related to the higher moments. The results demonstrate that using implied parameters related to the higher moments is more accurate than the restricted binomial and trinomial models that are commonly used.option pricing, volatility smile, Edgeworth series, Gaussian Quadrature, relaxed binomial and trinomial tree models, Marketing, Risk and Uncertainty,

ECONOMIC IMPACTS OF BANNING SUBTHERAPEUTIC USE OF ANTIBIOTICS IN SWINE PRODUCTION

Public health officials and physicians are concerned about possible development of bacterial resistance and potential effects on human health that may be related to the use of antimicrobial agents in livestock feed. The focus of this research is aimed at determining the economic effects that subtherapeutic bans of antimicrobials would have on both swine producers and consumers. The results show that a ban on growth promotants for swine would be costly, totaling $242.5 million annually, with swine producers sharing the larger portion in the short run and consumers sharing the larger portion in the long run.banning subtherapeutic use, feed efficiency, mortality rate, sort loss, Livestock Production/Industries, Q18, D61,

ECONOMIC IMPACTS OF BANNING SUBTHERAPEUTIC USE OF ANTIBIOTICS IN SWINE PRODUCTION

Public health officials and physicians are concerned about possible development of bacterial resistance and potential effects on human health that may be related to the use of antimicrobial agents in livestock feed. The focus of this research is aimed at determining the economic effects that subtherapeutic bans of antimicrobials would have on both swine producers and consumers. The results show that a ban on growth promotants for swine would be costly, totaling $242.5 million annually with swine producers sharing the larger portion in the short run and consumers sharing about 75$586 million per year with swine producers sharing about the same as in bans for swine only and consumers sharing significantly more than the swine only case.Crop Production/Industries,

INCREASING THE ACCURACY OF OPTION PRICING BY USING IMPLIED PARAMETERS RELATED TO HIGHER MOMENTS

The inaccuracy of the Black-Scholes formula arises from two aspects: the formula is for European options while most real option contracts are American; the formula is based on the assumption that underlying asset prices follow a lognormal distribution while in the real world asset prices cannot be described well by a lognormal distribution. We develop an American option pricing model that allows non-normality. The theoretical basis of the model is Gaussian quadrature and dynamic programming. The usual binomial and trinomial models are special cases. We use the Jarrow-Rudd formula and the relaxed binomial and trinomial tree models to imply the parameters related to the higher moments. The results demonstrate that using implied parameters related to the higher moments is more accurate than the restricted binomial and trinomial models that are commonly used

A recombining lattice option pricing model that relaxes the assumption of lognormality

Binomial trees, Gaussian quadrature, Option pricing, C58, G13, Q14,

A relaxed lattice option pricing model: implied skewness and kurtosis

Purpose – The purpose of this paper is to develop an option pricing model applicable to US options. The lognormality assumption that has typically been imposed with past binomial and trinomial option pricing models is relaxed. The relaxed lattice model is then used to determine skewness and kurtosis of distributions of futures prices implied from option prices. Design/methodology/approach – The relaxed lattice is based on Gaussian quadrature. The markets studied include corn, soybeans, and wheat. Skewness and kurtosis are implied by minimizing the squared deviations of actual option premia from predicted premia. Findings – Positive skewness is the major source of nonnormality, but both skewness and kurtosis are important as the trinomial model that considers kurtosis has greater accuracy than the binomial model. The out-of-sample forecasting accuracy of the relaxed lattice models is better than the Black-Scholes model in most, but not all cases. Research limitations/implications – The model might benefit from using option prices from more than one day. The implied skewness and kurtosis were quite variable and using more data might reduce this variability. Practical implications – Empirical results mostly show positive implied skewness, which suggests extreme price rises were more likely than extreme price decreases. Originality/value – The relaxed lattice is a new model and the results about implied higher moments are new for these commodities. There are competing models available that should be able to get similar accuracy, so one key advantage of the new approach is its simplicity and ease of use.Kurtosis, Modelling, Option markets, Pricing, Skewness, United States of America

ECONOMIC IMPACTS OF BANNING SUBTHERAPEUTIC USE OF ANTIBIOTICS IN SWINE PRODUCTION

Public health officials and physicians are concerned about possible development of bacterial resistance and potential effects on human health that may be related to the use of antimicrobial agents in livestock feed. The focus of this research is aimed at determining the economic effects that subtherapeutic bans of antimicrobials would have on both swine producers and consumers. The results show that a ban on growth promotants for swine would be costly, totaling $242.5 million annually with swine producers sharing the larger portion in the short run and consumers sharing about 75$586 million per year with swine producers sharing about the same as in bans for swine only and consumers sharing significantly more than the swine only case

ECONOMIC IMPACTS OF BANNING SUBTHERAPEUTIC USE OF ANTIBIOTICS IN SWINE PRODUCTION

Public health officials and physicians are concerned about possible development of bacterial resistance and potential effects on human health that may be related to the use of antimicrobial agents in livestock feed. The focus of this research is aimed at determining the economic effects that subtherapeutic bans of antimicrobials would have on both swine producers and consumers. The results show that a ban on growth promotants for swine would be costly, totaling $242.5 million annually, with swine producers sharing the larger portion in the short run and consumers sharing the larger portion in the long run